Virtus Investment Partners examines whether long holding periods actually reduce investment risk, arguing that time can magnify uncertainty instead of smooth it out. Using Japan’s post bubble collapse and historical U.S. drawdowns, the paper questions common assumptions behind buy and hold investing and traditional diversification frameworks.
MYTH: Time Reduces Risk
Virtus Investment Partners
Research
8 Pages
Key Takeaways
Japan Recovery Delays: The Topix Index compounded at -0.5% annually from 1990 to 2014 and may not reclaim its 1989 high until 2027 assuming 4% yearly growth.
Extended Equity Losses: Twenty years after peak valuations, the Nikkei 225 remained 73% below highs while the S&P 500 after 1929 was still down 52%.
Real Bond Underperformance: U.S. government bonds remained underwater in real terms for nearly 48 years between December 1940 and October 1988 despite their perceived safety.
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